Topic: Economics
Minimum Wage, Maximum Impact Raising the Minimum Wage may have made the politicians feel good, but it has wreaked havoc on this Nation's Employment. How good are we feeling now?by EJ Moosa
(libertarian)
Tuesday, November 3, 2009
Each month the employment numbers are released, and each month the numbers are worse. In fact, for 22 of the 26 months since the first minimum wage increase in July 2007 , month to month employment in the United States has been declining.
Prior to July 2007, only 1 of the 30 months preceeding showed a month to month decline in total employment.
July 2007 was well over a year before the "financial crisis" and the housing markets collapsed.
July 2007 was before the stock markets peaked (October 2007). So the stock markets were not a forward looking indicator of what was going to happen with employment.
All we needed to look at was government intervening in the labor markets to raise wages above what the markets would support to have an indication of what would happen. Common sense says if you raise minimum wage, someone will lose their jobs. The government denies that. The unions deny that. But companies that hire will confirm it. So do the numbers from the Bureau of Labor Statistics.
Before the first minimum wage increase in this latest cycle of government intervention, there were many metropolitan areas where the minimum wage offered by employers was higher than the minimum wage mandated by government. On the north side of Atlanta, you would have had difficulty finding a job that started at minimum wage. Why? The demand for labor by business could justify paying more money for that labor.
Yet when government intervenes, and the minimum wage rises higher than what business can justify, job cuts ensue.
Money is not free (unless you are printing it), and these companies had to find the money to pay higher wages somewhere. This money for the higher wages came out of profits.
At the end of the second quarter of 2007, corporate profits were $1,594.9 billion. They have declining ever since. For the most recent quarter reported they were $1,226.5 (second quarter 2009). This is a decline of 23%. Less profit by companies means less hiring going forward.
Minimum wage increased by 40.5% during that same time frame. Do you really believe there is no correlation here?
Labor is a resource in the United States. It is the most important resource (after our Constitutional Freedoms). To increase the cost of this resource arbitrarily by raising the minimum wage has been a disaster. This action had a cost. It may have been your job.
When another resource we use rose sharply we all felt the impact. We all changed the way we did things. What was that resource? Gasoline. Most of us may use one tank per week, and we felt the pain.
So what do you think companies who had to increase the pay to it's minimum wage employees felt? They felt the pain of raising wages and seeing their profits decline. Companies are not in bsusiness to earn less and less going forward.
Yet we had no Congressional investigations into the rise in the cost of labor. For they were the cause. And today we continue to feel the impact.
The labor situation is much worse today. Despite that, we raised the minimum wage anyway. Delaying the last increase was not even a consideration.
Minimum wage increases have had the maximum impact they could on employment, and in a very negative way. If you have lost your job, or had hours reduced, be sure to give the credit to those that have earned it. Let your Senators and Congressmen know how much they have contributed to this problem.
The American economy is right sizing itself at a rapid rate. If only Congress could truly understand the role they have played in all of this. Unfortunately, they would never believe it.
The wage structure in America starts like every building: from the ground up. Minimum wage is the ground level in terms of employment. To arbitrarily raise it is destructive to the balance of employment. And now we are suffering the consequences.
Before the increases, most small businesses were already operating on narrow margins of profitability. It's one of the reasons the businesses are still small. To force them to pay higher wages has forced them to reduce their head count. Higher unemployment is a direct result of raising wages beyond what the economy can support.
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The views expressed in this
article are those of EJ Moosa only and do not represent
the views of Nolan Chart, LLC or its affiliates. EJ Moosa is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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